OPINION: Remember fractious fractions

You don’t want to hear it, but fractions are important. They guide our lives. The unemployment rate. The pollen count. The interest rate. The speed of a car. All are fractions with numerators (the numbers on top) and denominators (the numbers on the bottom).

Per capita personal income (PCPI) is a fraction that became the holy economic grail for Hoosier politicians. What do they know of that annual numeric stew cooked by the U.S. Bureau of Economic Analysis?

PCPI is personal income divided by population? Yeah, but personal income is not the amount you report to the IRS.

The top of the fraction (personal income) includes money paid by employers for Social Security, unemployment insurance and other sums you don’t see. Plus there’s dividend, interest and rental income “imputed” to you. Also included is the value of government payments you get (Social Security) or made on your behalf by government (Medicare and Medicaid).

But most important, PCPI is a fraction with population as the denominator, meaning that when the population grows, PCPI shrinks and when population declines, PCPI increases.

For example, in Colorado between 2007 and 2017, personal income grew by 52 percent (5th in the nation) with population expanding by 17 percent (3rd in the U.S.). Both stratospheric figures any governor would be proud to tout. But that left PCPI increasing by 30 percent (just above the national average) and 21st among the states.

During those same years, Indiana had a 39 percent growth in personal income, just one percent below the national growth rate. That, for Indiana, was the rarified 19th best spot. On top of that, the Hoosier state had very slow population growth of just 4.4 percent, ranking 34th nationally.

Combined, our PCPI increase of 33 percent pulled us in as 10th best in the U.S. The only mystery is why the legislature didn’t hold a dance around the Maypole?

Slow growth or decline in population boosts PCPI. Thus, if increasing PCPI is an official goal of government, shouldn’t we be cheering our departing high school and college graduates over the next month? How’s that for a state policy reversal?

At the county level, 52 of Indiana’s 92 counties lost population between 2007 and 2017. That’s something to bring joy to the administration and the legislature.

With just one exception (Ohio County), each of those 52 counties enjoyed an increase in PCPI. The cover story might be written by Rush County. There, personal income grew by 34 percent (five points below the state figure), but a decline of 6.8 percent in population gave Rush 2nd place in the push to raise PCPI.

Our Hendricks County was very similar to Colorado where rapid population growth offset fast personal income advances. Ranked 4th among 92 counties in personal income growth and 3rd in population growth, Hendricks landed in 67th place in PCPI growth.

Moral: Know your fractions before you make your wishes.

Morton J. Marcus is an economist formerly with the Kelley School of Business at Indiana University. His column appears in Indiana newspapers, and his views can be followed his podcast.